It's been a 9,000x growth since the early '60s, something that was never in my father's goals. We learn a hell of a lot more from our failures than we do our successes. If you're not disrupting yourself from within, the market will disrupt you and turn you into a dinosaur. The government keeps getting bigger, more regulations, and more sadly, especially the next generation that believes we can't solve our own problems anymore. What if you had a business where people knew what to do without being told?
Chase Koch, welcome to the show.
Thanks, Marty. I appreciate you having me on.
I am honored to have you on. As we've been discussing over a couple of conversations over the last few months, we've implemented Koch Industries' Principle-Based Management system here at TFTC, and it's been wonderful.
It is. I think it is working. I think it is.
What have you found is like the most helpful right out of the gates to you guys?
I think for us, we probably spent 3 months doing PBM implementation with a consultant, and through that process, we realized that we had a bunch of knowledge gaps in the company. We have a relatively small team, and I think that was the most surprising thing: since we're so small, it should be relatively easy to get information and data to every member of the team. But through the process, we noticed that there are some knowledge gaps, mainly because I ran the company as a solo founder for six or seven years, and we've grown the team over the last two. There was a lot of embedded knowledge that I built up in my own head over the course of the first seven years that I just took for granted and needed to open up to the rest of the company.
Well, good. I appreciate you experimenting with it. In the principles, like what you're talking about on the knowledge side, there's also the framing of trying to have a republic of science. Polanyi's idea of a republic of science, whether it's a very small team or like Koch—we have 140,000 employees and growing—is to try to get knowledge on a specific problem, to try to get the best knowledge we can from the talent that we have around the world, and then make the best decisions at scale with the knowledge we have. It's always been one of our biggest challenges, right? But it starts with a mindset of having a republic of science and not thinking about an organization in silos, which I think is a trap that many companies have. If you have four or five different companies or even capabilities—sales versus marketing versus operations, however your company's set up—it's about how you can work as a team and design knowledge systems to make knowledge move as quickly as possible to where it's needed most.
We were actually talking about this yesterday because of all the innovation in AI that we're trying to experiment with. It's been amazing over the last year just to see the company, from the bottom up, experiment with some of these models and not do that from the top down. Sure, we have a vision of leveraging technology and driving transformation with it. But where you get the magic, at least in our experience and learning, is when you can create a bottom-up culture of spontaneous order, where someone has an idea—let's say between two of our businesses, our fertilizer business and Georgia-Pacific—where someone says, 'You know what? I think some of these folks over in Georgia-Pacific in operations can also benefit from this knowledge,' and that knowledge automatically transfers to those people, and no one's telling them to do it. No one's from the top down waving some magic wand like, 'Oh, you need to tell this person that.' There's no way you can do that in a really large company.
So, back to what I was saying yesterday: we were in a meeting and thinking, how do you create a faster republic of science with technology? There are so many new models that are being spun up, with Anthropic, for example, or Microsoft Copilot; we use all these different technologies. There are amazing models that are being built, but back to how do you make it so it's not stuck in silos, where groups in the CFO group are just applying it in their group. How do you get that over to Georgia-Pacific, or to our fertilizer or energy business, so that not all these groups are making the same model over and over? Because that drives your cost up, and there's also waste and inefficiency in that.
We were just talking about how you build almost like an app store, a Koch app store, where you can see the trends within the company of which ones are being used the most and adding the most value. Hey, why don't you try it on your business instead of starting from scratch? This one's probably 80% all the way there.
Back to your point on knowledge, this is one of our key principles: knowledge and transformation, and then also creative destruction. It's having every employee have the mindset of, one, how do I transfer knowledge across the organization, but also how am I innovating with these models and how fast they're moving, staying ahead to create a competitive advantage for the company? What you're working on within your shop, we're working on in spades as well. What's cool about principles like knowledge as an example, or creative destruction, is that it can work for one person, it can work for a 10-person shop, or a 140,000-person company. That's where we're so excited about what these principles can do. That's going to make or break Koch in the future: are we going to keep applying these principles and innovating, or not? To us, that determines the results, the future of Koch, and where we go as a company.
That's what really drew me to Principle-Based Management when it was originally pitched: it's really seeped in Hayek and Mises Austrian principles of grassroots—
I mean, on the macro scale, grassroots development of an economy, but you can apply that to the micro, too. I think information being the source of the inputs that go into decision-making, whether it's a fully grown economy or a business, is something that I've believed very deeply in on the macro side for years. So it was very intuitive once I found Principle-Based Management to just apply this to your business.
To your point about AI, I think it was very serendipitous that we started our PBM journey when we did, which was November of last year when Claude Opus was coming out. Then in January, we were still going through the process, and OpenClaw was becoming popular. We hopped on that right away, and it actually helped us solve this knowledge gap. I think it was a combination of PBM, the agents, and then the paper that Jack Dorsey and Roelof from Sequoia put out about businesses becoming this intelligence layer and sort of flattening the hierarchy that most businesses follow with an executive class, managerial class, and then underlings between them in these silos.
Identifying that we had this knowledge gap and then having the tool of these models and the harnesses that make them very powerful has enabled us to solve those knowledge problems pretty quickly. Now we've built up this agentic system internally with a company brain. Instead of people having to communicate even with each other, they can just ping the company brain, the intelligence layer, to figure out, 'Okay, who do we have coming on the podcast in the next week? Is there a headshot that we need to get? Is there an ad we need to insert?' It's interacting with the agent. Obviously, we're still interacting with each other, but you can sort of solve that knowledge problem with the agent as well.
It's so exciting to hear that you're practicing these principles and experimenting with them. For us, the reason my father and I just wrote this book called *Becoming a Principle-Driven Leader*—it's the first book I've ever been a part of; it's my dad's fifth—is not just to get these ideas out to Koch employees, where we feel like we have so much opportunity just to empower people with these principles to continue to transform the company, but we want to get it out to society, too. We feel like we will all be much better off if we can solve problems in a principled way, and not only get better business results, but interact in a way in society that takes us out of this divisiveness.
We are all living in unprecedented uncertainty, whether it's economic uncertainty or the stuff we're just talking about with AI—will it displace jobs, all of those things—or just divisiveness in general. The whole reason why we think a principled approach wins is that you have to have something to navigate all of this uncertainty. If you don't have a principled approach and a framework to work with, too many people unfortunately blow with the wind. Whatever is trending or whatever is the most popular, you can apply that to business and just chase the trends, or you can apply that to what you believe at your core based on what you read in social media.
Our hope is that this principle-based framework, the way we're organizing this and communicating it to the world, gives people a navigation tool for that unprecedented uncertainty. Big picture, I know we started right in the business, but for us, it's much more of a societal thing. I know you studied all this stuff, and I did as a kid, too: Hayek, von Mises, Milton Friedman, all of the core philosophers that really my father learned these principles from. But it's more than just transforming a business; it's like transforming your life and transforming society at large. Just for your audience, that's a broader picture of why we're so excited to get these ideas out into the world.
To your point, I think they're very important to get out there. The principles that you've laid out in *Becoming a Principle-Driven Leader*, and the book that I read when I first started getting into PBM was *Good Profit*, which your father Charles wrote. It really helped orient myself as we were beginning to go through this process.
To take that step back, Koch's been around since 1940, 86 years. In our conversation in May or June that we had, our first call, one of the ideas that's been stuck in my mind since I've read *Good Profit* is it seems very clear to me that Koch Industries has paired patience, patient capital, risk-taking, and creative destruction in a way that very few companies have done over the last century. Particularly that idea of patient capital, taking long-term bets and staying private so you can take those long-term bets, is something that is underappreciated these days, particularly in a world where we like to say on this show that we live in a high-velocity trash economy where everything's driven by quarterly financials and really just thinking day-to-day, not taking a step back and thinking long-term. Koch having been around for 86 years is a testament to the other way of doing things, which is long-term, seeped in principles and morals, and taking the time to actually do things in a calculated way.
Well, Marty, to your point, I appreciate what you're saying about the company. You're right. Over the last almost 90 years, it's really been an enduring business because of this principle-based approach. That is the differentiator and where it started. But a lot of people think that the Koch story is just up and to the right. If you've read the book, you read the story that it has been a rocky road. There are almost two bankruptcies in there in the story.
The way we framed the storytelling of the book that we hope is most helpful to the world is through the lens of failure. I think that's one of the biggest differentiators on how we tell the story: we learn a hell of a lot more from our failures than we do our successes. Back to this principle-based approach, all of those failures consistently come down to ignoring one or more of the principles, where we just ignored it, plowed ahead, and didn't challenge ourselves. All of our successes, or where we've transformed and dug ourselves out of the ditch, is because we really focused on the principles to dig ourselves out. So, rocky road, lots of failures, but it's how you learn from those failures, internalize the principles at a deeper level, and then share those stories with others so they can learn from your mistakes and keep growing.
It's a crazy story. Like I said, it's a rocky road, but it's been a 9,000x growth since the early '60s, something that was never in my father's goals to build a company like that. He just kept learning from failure, but also studying the principles of human progress: what worked in society, what made countries successful, what made countries fail. He kept adding these principles and empowering great talent with those principles and getting out of the way.
I like celebrating my father not only because he's my best friend and mentor, but he leads by example, right? That's the only way this works and you have the story that you do. He looked at his own gifts and where his own weaknesses were, and instead of thinking about himself as a typical CEO who is top-down, making a lot of the strategic decisions, he thought about himself more as a chief philosophy officer, because his core gift was these abstract principles. He learned them, understood them, and then figured out how to communicate that into a large organization where if people can understand the principle, they can go empower it in their own way, not on a rules or formulaic basis.
A lot of companies are run that way: very process-driven, 'We've always done it this way, we're going to do it that way.' He wants it to change daily in terms of what are the new systems and processes, how do we leverage AI in a new way, 'I used to do it this way, how can we blow that up and start over?' You and I talked about this before, but one of the key principles that is core in our vision statement is creative destruction. That's Joseph Schumpeter's principle that he coined in 1942: if you're not disrupting yourself from within, the market will disrupt you and turn you into a dinosaur. We're seeing his whole idea of the ground always crumbling beneath your feet. My father always says, 'Well, now it's earthquakes; it's not crumbling. We're all dealing with earthquakes all the time.'
That's why creative destruction is in every meeting, in every conversation of what we're doing to transform ourselves and disrupt what we've done in the past. There are no sacred cows at Koch. Even though my grandfather started the company in crude oil pipelines, energy, and refining, none of that's sacred. We're investing in all sorts of alternative energies because we believe the energy stack of the future needs all of it to power the world: we need fossil fuels, natural gas and crude oil, we need solar, we need nuclear. A lot of people have a misperception that Koch's just focused on fossil fuels because that's where they started. That's like 4% of the capital that we have in the business. Why? Because we believe in creative destruction and constantly investing in the next technology.
Make experiments and make investments that we know have a low probability of success, but if we're not in the game testing and learning and driving that principle of experimental discovery, we'll eventually become a dinosaur. A combination of creative destruction and experimental discovery—you've got to live and breathe that every day, and not just at the top. We need the whole organization to be thinking that way and innovating in their day-to-day roles, their jobs, and their tactics. It's core to what got us here, and it will be core to see if we can keep this going for multiple generations.
Another list of values or principles that you've talked about in the book and just having observed from going through the process that we have here at TFTC is there's a level of humility that's necessary for the individual within Koch Industries, even at the top, and meritocracy that exists based off of that humility: humility to notice what you're good at and focus on that, what you're passionate about, because at the end of the day that will benefit the company overall. You went through this personally.
Yes, I did within the company.
How did you recognize that you need to step back? I believe you were the head of the fertilizer division.
Yeah. Maybe just to give your audience a high-level framing on the company, we touch the majority of the economy. I mentioned we have 140,000 employees, one of the largest privately owned businesses in the US. One of those nine operating businesses is in fertilizer, wood products with Georgia-Pacific, technology with Molex Connectors, a global business, Infor, a very large ERP software company, and glass manufacturing. So, a lot of different things; we're very broad, and we own and operate those platforms.
I spent about a decade in the fertilizer business. This goes back to one of the principles that you're talking about, whether it's humility, intellectual honesty about who you really are, but also the principle of comparative advantage: what have you demonstrated your gift is relative to what everyone else can do on the team? That's a very important point: what you're good at relative to what others are good at on the team. I think a lot of people mistake comparative advantage for absolute advantage, just like, 'What am I best at in a vacuum?' If you're not looking at trade-offs of what you could be doing relative to your alternatives and relative to what others can be doing, you're missing out on a huge opportunity.
Just to tee up my story: looking at my father and how he recognized his comparative advantage was abstract concepts and really organized his role and his job around being more of a chief philosophy officer, challenging with principles and empowering people with principles, I realized in the fertilizer business that I was a much better builder than I was an operator. I had a great opportunity to be president of the business, which was the third-largest profit driver of Koch, a huge business operating in 30 countries and 3,000 or 4,000 employees. But I realized that it was not my comparative advantage after about 9 months. Frankly, I was miserable in the role.
Most people think, 'Oh, you got the big job, you're running the whole thing now. Why would you ever step away from that?' It's because, one, my father taught me humility and intellectual honesty to really look in the mirror and understand who you are, but the second thing is I really understood comparative advantage. I looked at the guy, Scott, who could have been running it. He was a great operator, and I knew he was going to be a great president as well, and he was operating a smaller part of the business. So his opportunity cost of not running the whole thing, combined with my opportunity cost back to trade-offs—what I was giving up as a team member was focusing on building, looking at innovation, and what we can do to drive creative destruction.
If I was honest with myself, even though it was cool to have the CEO title and what everyone thinks you should want, I wasn't happy and I wasn't doing a good job relative to the alternatives we had in the business and someone like Scott running it. We were missing out on this big opportunity to go invest in new technologies.
Once I met with leadership and we talked about all the different trade-offs, I've called it 'firing myself' before, but that doesn't really articulate the principle itself. If you look at it objectively, it's just about wrong person, wrong role, and too many trade-offs for all the people involved. Think about everyone's comparative advantage just like a sports team: get everyone in the right positions—quarterback, wide receiver, lineman, tight end—relative to what they could be doing in other roles on the football team, and go get the best results overall and win the championship.
That's what we did. The business performed better, and then I got to ultimately start Koch Disruptive Technologies. That was a whole new arm for Koch. If everyone is in their comparatively advantaged role and they can look in the mirror and say, 'This is my sweet spot,' you start to see the results follow that.
We talk about 41 principles in the book; comparative advantage is one of the most powerful, and I think it's one of the most misapplied principles. I think the reason for that is too often we worry about what everyone else thinks about our job, our own ego, or how many people report to me, and think that's some kind of measure of success, when the measure of success is: are you maximizing how much value you can create as an individual towards the overall vision of the business? So much is missed across so many businesses. What a societal transformation we could make if we all applied comparative advantage! People would be self-actualizing because it's like, 'I'm killing it every day, and I'm not in the wrong role.' It's a really big one. I know I probably overexplained that one, Marty, sorry, but I'm very passionate about it because I've seen it misapplied so much, and I'm kind of example number one on that.
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Yeah, 'know your role' is a concept that's been in my mind since high school. I played on a very good lacrosse team; we were number one in the state our senior year. We had very good coaches, and that was the one thing that they beat in our head: know your role. You don't need to be the star if you just do your role perfectly well.
For some reason, it's easier to apply in sports; it's more obvious. But then when you apply that in business, for whatever reason, it's just more gray in terms of who does what. So, we have a lot of people working on the wrong things.
Yeah. Well, it seems clear that you're enamored by creative destruction, and I think that that can lead into a couple other principles from the book, too. Because with creative destruction, you're venturing into the unknown in a way to figure out what's new and how you can apply it to your business. That comes with a lot of experimenting and a lot of failure as well, which should both be expected. That's another thing in the book that I really appreciated: the normalization of failure and rapid experimentation, which is necessary if you're actually going to be able to successfully creatively destruct your incumbent business.
